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ITV Report

25 February 2013 at 11:53am

Welsh Tories would cut taxes for higher earners

The Assembly Opposition Leader is expected to say that he'd cut the 40% income tax rate if he were part of a future Welsh Government with tax-varying power. In a speech later, Andrew RT Davies is to say that cutting the rate for people who earn over £34,000 a year, would encourage business growth.

It cannot be right that just 1 in 16 people in Wales earn more than £34,000. It cannot be right either that the average salary is just £19,000 and whilst over a million people in Wales have been given a tax cut and a further 60,000 people have been taken out of tax altogether because of action taken by the coalition government, I believe there is more that can be done.

This is why, if some elements of income tax are devolved, it would in my view be necessary to look at a period of reduced taxation for the entrepreneurial, whether private or public sector - those paying the 40% tax rate.

This would not only send out a strong sign to business in competing regions of the UK, but it would spell out that Wales is well and truly open for business.

– Andrew RT Davies, leader of the Opposition

Welsh Conservatives say such a move would benefit 89,000 people who earn more than £34,000 a year and would cost between £12m-£16m. And they say it would complement UK Government efforts to make sure the lowest earners pay less or no tax.

But the move is significant even though it's speculative and acknowledged by Welsh Conservative insiders to be as much about political positioning as it is about economics.

They expect opponents to paint them as elitist for saying they'd focus cuts on higher rate tax payers. But Tories point out that people start paying that 40% at just £34,000 and that their coalition colleagues in Westminster are already making moves to ensure the lowest earners pay less or no tax.

Conservatives are unlikely to be in a Welsh Government in the near future and income tax power isn't going to be devolved soon. But, as one insider puts it, this is a 'clear blue water' statement, showing the Welsh Tories' centre-right thinking and sharpening debate about what devolution is for.

It's certainly sharpening debate about the proposals. Labour's two-pronged attack came first from Shadow Welsh Secretary Owen Smith who said:

The contrast between Labour's proposal to cut taxes for 1.2 million Welsh workers by reintroducing a 10p band and the Tories' secret plan to prioritise 120,000 higher earners by cutting the 40p rate couldn't be clearer.Andrew RT Davies has yet to tell us how much this tax cut would cost and most importantly which services the Tories would cut to pay for it if they won power in Wales.

George Osborne is to introduce yet more austerity measures as he sticks to his failed economic strategy, but has he costed this tax cut into his budget plans for 2016/17? And did David Jones know about it as he prepares his response to the Silk Commission?This is a half-baked plan that won't help the Tories' credibility following the humiliating loss of Britain's AAA credit rating this weekend.

– Owen Smith MP, Shadow Welsh Secretary

And then from a Welsh Government source who added:

The Tories also appear to be quite willing to ignore the view of the people of Wales. The Welsh Labour Government has made its position repeatedly clear that there would need to be a referendum before powers to vary income tax were devolved. We believe the people of Wales should have the final say on this matter. The Tories on the other hand, don't trust the Welsh people to make their views known.

We believe it’s premature to develop any detailed tax policies at a time when the UK Government has yet to announce whether it will devolve any taxes to Wales, let alone whether it will allow devolution of powers that would permit the sort of rate-varying policy that the Welsh Tories have proposed.

– Welsh Government source

Plaid Cymru's leader Leanne Wood called the Conservatives 'irresponsible' and 'out of touch.'

Today’s announcement is irresponsible politics and shows why, as demonstrated by last week’s poll, people in Wales do not trust the Conservatives. We are somewhere between three and seven years away from getting powers over taxation transferred to Wales. It is impossible to accurately predict what the Welsh economy will look like at that time. Like the Chancellor’s plans for growth, this statement from the Tories and its timing can't be taken seriously.

If they want to encourage entrepreneurship, why aren’t they taking immediate action to help Welsh businesses? Why aren’t they changing the business rates regime so that some of our small and medium sized private sector employers can be helped to protect or create jobs? And why won’t they make capital gains tax fairer? That’s what would make a difference to Welsh entrepreneurs, does the leader of the Conservative group in the Assembly understand that? It seems he doesn't.

If the Conservatives want to help Welsh businesses, then this announcement is mistargeted. Their proposal would principally help people who are already in well-established, well-paid jobs in both the public and private sector. It would do nothing to support business start-ups and early stage companies - the people we should be supporting to create good quality, long-term jobs.